INTRODUCTION

In the recent case of Asia Pacific Higher Learning Sdn Bhd ((Registered Owner and Licensee of the Higher Learning Institution Lincoln University College) v Stamford College (Malacca) Sdn Bhd [2024] MLJU 1712, the Court of Appeal had to decide a critical issue regarding the enforceability of an arbitration clause in a commercial agreement between two private higher learning institutions. The case revolved around a collaboration agreement in which Stamford College was to conduct undergraduate programs on behalf of Lincoln University College, operated by Asia Pacific Higher Learning. When disputes arose, Stamford College sued Asia Pacific for breach of contract and other tortious claims, leading to a legal argument over whether the matter should be resolved by way of litigation or arbitration. This case serves as a key example of how courts approach ambiguities in arbitration clauses.

 .

BRIEF BACKGROUND FACTS AND FINDINGS OF THE HIGH COURT

The disputes arose from a collaboration agreement between the two parties, both are registered private higher learning institutions under the Malaysian Ministry of Higher Education. Asia Pacific Higher Learning Sdn Bhd (the Appellant) (“Asia Pacific”), which operates Lincoln University College, entered into a Memorandum of Agreement (“MOA”) on 13.11.2011 with Stamford College (Malacca) Sdn Bhd (the Respondent) (“Stamford College”). Under this MOA, Stamford College was to conduct several undergraduate programs of Lincoln University College at Stamford’s premises in Melaka.

However, disagreements and disputes later arose regarding the management and execution of these programs, leading Asia Pacific to terminate the MOA. Thereafter, Stamford College filed a suit against Asia Pacific in the Shah Alam High Court, alleging breach of contract, fraudulent misrepresentation, deceit, and negligent misstatement.

Thereafter, Asia Pacific filed an application for Stay pending Arbitration pursuant to Section 10 of the Arbitration Act 2005, as per the dispute resolution clause as set out at Clause 36 in the MOA. Clause 36 of the MOA states as below:

“(36) Settlement of Disputes

(a)          Any dispute under this Agreement between the parties to this Agreement shall be settled by a single arbitrator mutually as agreed by the parties to this Agreement or under the courts of Malaysia.

(b)           A dispute under this Agreement shall include any dispute of difference between the parties thereto regarding any matter or thing whatsoever herein contained, or the operation or construction thereof or any matter, or thing in any way connected with this Agreement, or the rights, duties or liabilities of either party under or in connection with this Agreement.”

The Judicial Commissioner in the High Court rejected Asia Pacific’s stay application on the basis that the arbitration clause is inoperative. It was held that litigation, rather than arbitration, was the appropriate forum for resolving the dispute. It was also held by the Judicial Commissioner that the Courts possessed the jurisdiction and authority to determine the validity of the arbitration agreement and that the matter must be litigated due to the substantial public policy implications and the welfare of the affected students.

Dissatisfied with the Judicial Commissioner’s decision, Asia Pacific appealed to the Court of Appeal. 

 .

FINDINGS OF THE COURT OF APPEAL

The Court of Appeal unanimously dismissed the appeal, maintaining the High Court’s decision to refuse a stay of proceedings for arbitration. In making the decision, the Court of Appeal had to consider 2 main issues as follows:

Operativity of the Arbitration Clause

In essence, Asia Pacific argued that the court proceeding ought to be stayed pursuant to Section 10 of the Arbitration Act 2005, as there is an arbitration clause in the MOA. It contended that the court should adopt a “prima facie” approach and defer to the arbitral tribunal to determine the validity of the arbitration agreement.

Stamford College, on the other hand, argued that the stay application ought to be dismissed as the arbitration agreement at Clause 6 was unclear and inoperative.

The Court of Appeal noted a conflict in judicial precedents regarding the standard of review the courts should apply in stay applications, i.e. between a prima facie review and a full merits review of the facts of the disputes. However, the Court of Appeal upheld the High Court’s decision, agreeing that the arbitration clause was ambiguous as the clause provided the option to resolve disputes either by arbitration or litigation, which did not create a mandatory obligation on the parties to arbitrate. Thus, the Court of Appeal found that there was no basis to enforce the arbitration clause, and Asia Pacific’s application for a stay was dismissed.

Arbitrability of the Dispute

As the Court of Appeal had already determined that the arbitration clause was inoperative, the Court recognised that addressing the issue of whether the disputes were arbitrable was technically unnecessary. However, for the sake of completeness, the Court of Appeal decided to briefly examine the matter.

It was observed that the disputes between the parties were based on breach of contract and tortious claims such as fraudulent misrepresentation, which are typically arbitrable, depending on the scope of the arbitration clause. The Court of Appeal concluded that, assuming the arbitration agreement was valid, the disputes between the parties were arbitrable based on the broad wording of the arbitration clause in the MOA, which included matters “in any way connected” to the MOA.

Furthermore, in support of its position, Stamford College relied on Section 4 of the Arbitration Act 2005 which states that any dispute which the parties have agreed to submit to arbitration under an arbitration agreement may be determined by arbitration unless the arbitration agreement is contrary to public policy or the subject matter of the dispute is not capable of settlement by arbitration under the laws of Malaysia. It was argued by Stamford College that the disputes between the parties involved public interest because it concerned students who were left stranded without degrees.

While acknowledging the significance of the affected students’ situation, the Court of Appeal concluded that the issue did not directly impact the enforceability of the arbitration clause.

COMMENTARY

This case highlights the importance of drafting clear and unequivocal arbitration clauses in commercial agreements. The ambiguity in the arbitration clause, which gave the parties an option to arbitrate or litigate, may lead to unnecessary complications on the operativity of the arbitration agreement. It reinforces the principle that courts will not compel arbitration unless the parties have clearly and unequivocally agreed to submit the disputes to be resolved by way of arbitration.

In conclusion, this case highlights the importance for institutions and companies entering into complex agreements to ensure that dispute resolution mechanisms, especially arbitration clauses, are clearly defined and enforceable to avoid disputes over the proper forum for resolving conflicts.

About the author

Ooi Hui Ying
Senior Associate
Arbitration, Construction &
Engineering Disputes
Harold & Lam Partnership
huiying@hlplawyers.com

More of our articles that you should read:

• • High Court clarifies Item 22(1) of the First Schedule of the Stamp Act 1949 and the Stamp Duty (Remission) (No. 2) Order 2012
• • Can an Adjudication Decision, After Having Been Enforced Pursuant to Section 28 CIPAA 2012, Be Stayed Pursuant to Section 16(1)(b) CIPAA 2012?
• • Constructive Dismissal: The Applicable Test – “Contract Test” vs The “Reasonableness Test”